Small-Cap Stocks

Investing in small-cap stocks is a good way to earn huge returns. The smaller companies often have the most potential for growth. They also carry plenty of risk for investors.

Anytime you buy shares of a small, little-known company, there are a bevy of unknowns. Some small-cap stocks are clinical-stage biotechs whose drugs have yet to be approved for commercial use. Others are chipmakers or cloud-computing companies that have plenty of promise but have been simply misunderstood by the market.

It’s impossible to take the risk completely out of small-cap investing. But there are ways to minimize those risks without sacrificing potential profits. For starters, set up a clearly established set of rules ahead of time, and stick to them.

Our small-cap expert, Tyler Laundon, has a very specific set of rules for identifying the right stocks. Those are:

Search for paradigm shifts in any field of business that requires a unique, new solution that will be provided by a stand-alone company. Then seek a niche supplier that will become an equal benefactor to that pioneering company.

Invest only when the market opportunity is huge—and quantifiable. Only invest in small companies that serve large, burgeoning markets because you can realize tremendous growth with even small shares of the market.

Get into a small-cap stock before institutional investors become aware of it. Sometimes it takes a while for the big hedge funds or mutual funds to discover small yet promising companies. Once they do, it quickly drives up the price.

Invest in small caps that offer both growth and value. Look for relatively young companies with growing sales, yet is undervalued based on the company’s market potential versus its total market capitalization. A balance sheet with little to no debt is also a big plus.

Invest at the right time in the product cycle. There is a direct correlation between the time of investment and the degree of risk and rate of return you can expect. The time period after venture capital investors come aboard is generally the most promising.

Lastly, concentrate on the very best ideas. Look for industries that have hit a roadblock and need new technologies to keep growing. The small companies that provide those breakthrough technologies make for the best small-cap stocks.

These rules won’t help you pick all winners. But they should give you a leg up in selecting the right small caps.

They have certainly worked for Tyler in his years as a small-cap analyst. Between 2012 and September 2015 his small-cap recommendations generated cumulative returns of more than 2,300%, including both winners and losers, and outperformed the Russell 2000 Index by an average of 28% per year.

Tyler applies those winning philosophies as editor of our Cabot Small-Cap Confidential advisory. Searching for small-cap stocks can seem a bit overwhelming. In the Cabot Small-Cap Confidential advisory, Tyler does all the heavy lifting for you, identifying those hard-to-find small caps that can earn you the kind of triple-digit returns that can transform your portfolio.

Cabot Wealth Advisories

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Cabot Dividend Investor focuses on preparing for retirement, recommending a solid range of income-generating stocks, preferred stocks, REITs, MLPs, closed end funds and utilities, with particular emphasis on risk, dividend safety and dividend growth. If you’re retired or thinking about retirement, this advisory is designed for you. Cabot Dividend Investor’s proprietary Individual Retirement Income System (IRIS) will help you allocate your assets for capital appreciation, current income, growth and future income investments according to your retirement goals.

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Cabot Small-Cap Confidential is a limited-circulation advisory for investors seeking profit opportunities in high-potential small company stocks. Each month, small-cap expert and Chief Analyst Tyler Laundon features in-depth research on one outstanding small-company stock that is a pioneer in its field and undiscovered by institutional analysts. Updates on all recommended stocks are sent weekly. The circulation of Cabot Small-Cap Confidential is strictly limited because the stocks recommended are often low-priced and thinly traded. In the publication’s first five years, spanning 2007-2012, the average stock recommendation gained 30.5%.

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Editor Nancy Zambell scours more than 200 advisories and research reports to select the top recommendations by the top analysts. Selections run the full range of opportunities: growth stocks, value stocks, technology, small-caps, biotech, pharmaceuticals, mutual funds, ETFs and more. One Spotlight Stock is featured each month, along with Nancy’s insight on the market and updates on past recommendations. Thirty-plus recommendations are delivered to you in Daily Alerts directly to your email box, and collected in an easy to read digest each month.

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Market Update

From Cabot Dividend Investor
After another big drop at the end of last week, the stock market found its footing Monday. The S&P 500 closed slightly higher Monday and Tuesday, and volume declined. However, the week is unlikely to stay quiet. January inflation data will be released later this morning, and is a major data point affecting interest rate expectations. Analysts currently think core prices rose 1.7% in January (year-over-year), down slightly from 1.8% inflation in December. However, even a slightly higher or lower number could make waves; a 0.2% monthly increase in Core CPI would push the annualized inflation rate over the all-important 2% level.UpdatedFebruary 14, 2018